One fairly consistent trend that has been occurring in many local markets in recent months has been a rising average days-on-market (DOM) figure. Home prices have been shaky, with NAR showing 5.1 percent lower prices in the first quarter of this year compared to last year and Case-Shiller showing 3 percent lower prices in the first two months of this year. These two events appear to go hand-in-hand.
Without doubt, some home sellers need to get realistic about how to properly price their homes to attract buyers. However, we should be mindful of the statistic trick that days-on-market can play. Consider also another recent fact showing a fewer number of newly listed properties. That is, of the total existing inventory, an increasingly large percentage of homes are not new listings, which naturally have a very low DOM number.
In the table above, it becomes clear that the average DOM could easily, and in fact is more likely to, be higher in the second row even though the raw inventory numbers would imply healthier market conditions. So the average DOM can mislead market observers.
A better measure of the supply-and-demand condition in the market is the total inventory in relation to sales. That is what is captured by the statistics on months-supply of inventory. Furthermore, the months-supply figure is not subject to any potential manipulation of changing listing status (e.g., delist, wait, then relist as brand new) because it only counts how many homes are listed and not how long properties have been listed. The latest months-supply at the national level is at 8.4 months. That is about the same as last year’s figure at this time of the year when the market was artificially juiced up with the homebuyer tax credit. The latest months-supply figure is also lower than the 10 to 12 months-supply conditions during the second half of last year.
The lower home price of those transacted homes is partly due to more distressed property sales. But as distressed property sales thin out over time, prices will likely show stabilizing patterns.
The bottom line: DOM for an individual property is very important and re-pricing will be necessary at some point if the property’s DOM rises. However, an average DOM figure for the market as a whole may not be a good indicator about how to price the home.